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Pres. Barack Obama has launched new international diplomatic poker with “a trailing hand”. It is impossible to exaggerate the forces at play, economic as well as political, foreign and domestic, and their interplay.

Are countries which want to trade in their own currencies or to own their own central banks getting spanked ?

JPM's head economist Michael Feroli just joined the bandwagon of other Wall Streeters in cutting Q4 GDP, trimming his prior forecast of 3.5% to 3.0%. However, as this is backward looking, it is largely irrelevant if confirming what we already knew: that the economy was certainly not growing as fast as the market implied it was (yes, the manipulated market is not the economy, no matter how much the Fed would like that to be the case). A bigger question is what should one expect from the future. Yes - an in vitro future, isolated from the daily rumor mill of what may or may not happen to the French rating tomorrow or the day after. It is here that there is nothing good to expect: 'we think growth will downshift from 3.0% in 4Q11 to 2.0% in 1Q12. Looking beyond the first quarter, we expect a growing private domestic sector will contend with a fading drag from the external sector and a persistent drag from the public sector." Yet where JPM falls short, is its optimistic view on the private sector. As David Rosenberg showed yesterday, the ratio of negative to positive preannouncements just hit a multi-year high, with the primary culprit being the strong dollar. Unfortunately for Feroli's bullish angle, the private sector will not do all that well at all if the EURUSD remains in the mid 1.20s or falls further. In fact, corporate earnings will likely be trounced, which in combination with everything else that JPM lists out, correctly, could make the second half of 2012 a perfect storm for economic growth, an event which Obama's pre-electoral planners are all too aware of. What is the only possible recourse? Why more QE of course. The only unknown is "when."

Quick, what country is the economic engine that will power world growth? If you answered "China," you're far from alone. But there's another country that deserves as much attention and better yet, is much friendlier to investment: India, home to 1.2 billion people. To electrify all those houses, power the industries that keep all those people employed, and fuel the vehicles that more and more Indians own, India's energy needs are shooting skyward. First question to consider: what kind of energy does India need? Just about every kind, really. India encompasses significant reserves of coal, oil, and gas, but each year it has to import more and more to meet its rapidly rising demand. Domestic production increases have been hampered by land disputes, interminably slow permitting, and government-regulated pricing mechanisms that discourage development. That's got to change if India wants to keep up, and its government knows it. Domestic supplies always come with better reliability, better prices, and other benefits that we can shorten into two words: energy security. So India is reaching out to foreign oil majors, quietly setting up deals to exchange stakes in giant, underexplored oil and gas fields for the technical expertise it needs to best develop these resources. These partnerships are working into place slowly. However, they show Delhi is serious about the welcome mat it rolled out in 2000, when it passed a policy that allows foreign companies to own 100% of any oil and gas assets they may want to acquire for exploration and development. And what we really like is that explorers are welcome in a democratic and reasonably friendly country that harbors none of the risk of asset nationalization that clings to other underexplored locales, like Venezuela.

In each of the years 2008, 2009, and 2010, significant worries emerged that Western nations might attack Iran. Here again in 2012, similar concerns are once again at the surface. Why revisit this topic again? Simply because if actions against Iran trigger a shutdown of the Strait of Hormuz, through which 40% of the world's daily sea-borne oil passes, oil prices will spike, the world's teetering economy will slump, and the arrival of the next financial emergency will be hastened. Even if the strait remains open but Iran is blocked from being an oil exporter for a period of time, it bears mentioning that Iran is the third largest exporter of oil in the world after Saudi Arabia and Russia. Once again, I am deeply confused as to the timing of the perception of an Iranian threat, right now at this critical moment of economic weakness. The very last thing the world economies need is a vastly increased price for oil, which is precisely what a war with Iran will deliver. Let me back up. The US has already committed acts of war against Iran, though no formal declaration of war has yet been made. At least if Iran had violated US airspace with stealth drones and then signed into law the equivalent of the recent US bill that will freeze any and all financial institutions that deal with Iran out of US financial markets, we could be quite confident that these would be perceived as acts of war against the US by Iran. And rightly so.

Markets are moving positively across the board today following comments from Fitch, dampening speculation that France may be downgraded from its Triple A status. Fitch’s Parker commented that he does not expect to see France downgraded at all throughout 2012. However he added that there are continuing pressures for France from national banks and EFSF liabilities, Parker also reinforced German confidence stating that Germany’s Triple A rating is safe. Markets were also experiencing upwards pressure from strong French manufacturing data performing above expectations and successful Austrian auctions today, tightening the spread between France and Austria on 10-year bunds.

The geopolitical foreplay is getting ridiculous. At this point it is quite obvious that virtually everyone involved in the US-Israel-Iran hate triangle is just itching for someone else to pull the trigger. And the latest report out of the IAEA will only precipitate this. Who - remember the IAEA? The same IAEA which did not find nukes in Iraq in 2003 only to be overriden by Dick "WMD" Cheney to "justify" an invasion. As RIA reports:  "The International Atomic Energy Agency officially confirmed that Iran has started enriching uranium to the 20-percent level, which can easily be turned into fissile warhead material. "The IAEA can confirm that Iran has started the production of uranium enriched up to 20 percent using IR-1 centrifuges in the Fordo Fuel Enrichment Plant," the agency said in a statement. However, IAEA Spokeswoman Gill Tudor said that all nuclear materials and operations in the Fordo facility are “under the Agency's containment and surveillance."" Naturally, that leaves the "use of uranium" variable quite subjective and in the hands of political manipulation. Which means at this point it is only a matter of days before the meme that Iran already has nuclear warheads becomes actively adopted by warmongers everywhere.

We have now entered the fifth year of this Fourth Turning Crisis. George Washington and his troops were barely holding on at Valley Forge during the fifth year of the American Revolution Fourth Turning. By year five of the Civil War Fourth Turning 700,000 Americans were dead, the South left in ruins, a President assassinated and a military victory attained that felt like defeat. By the fifth year of the Great Depression/World War II Fourth Turning, FDR’s New Deal was in place and Adolf Hitler had been democratically elected and was formulating big plans for his Third Reich. The insight from prior Fourth Turnings that applies to 2012 is that things will not improve. They call it a Crisis because the risk of calamity is constant. There is zero percent chance that 2012 will result in a recovery and return to normalcy. Not one of the issues that caused our economic collapse has been solved. The “solutions” implemented since 2008 have exacerbated the problems of debt, civic decay and global disorder. The choices we make as a nation in 2012 will determine the future course of this Fourth Turning. If we fail in our duty, this Fourth Turning could go catastrophically wrong. I pray we choose wisely. Have a great 2012.

Previously we heard Pimco's thoughts on the matter of an Iranian escalation with "Pimco's 4 "Iran Invasion" Oil Price Scenarios: From $140 To "Doomsday"", now it is the turn of SocGen's Michael Wittner to take a more nuanced approach adapting to the times, with an analysis of what happens under two scenarios - 1) a full blown EU embargo (which contrary to what some may think is coming far sooner than generally expected), and the logical aftermath: 2) a complete closure of the Straits. The forecast is as follows: 1) "Scenario 1: EU enacts a full ban on 0.6 Mb/d of imports of Iranian crude. In this scenario, we would expect Brent crude prices to surge into the $125-150 range." 2) "Scenario 2: Iran shuts down the Straits of Hormuz, disrupting 15 Mb/d of crude flows. In this scenario, we would expect Brent prices to spike into the $150-200 range for a limited time period." The consequences of even just scenario 1 is rather dramatic: while the adverse impact on the US economy will be substantial, it would be the debt-funded wealth transfer out of Europe into Saudi Arabia that would be the most notable aftermath. And if there is one thing an already austere Europe will be crippled by, is the price of a gallon of gas entering the double digits. And then there are the considerations of who benefits from an Iranian supply deterioration: because Europe's loss is someone else's gain. And with 1.5 million of the 2.4 Mb/d in output already going to Asia (China, India, Japan and South Korea) it is pretty clear that China will be more than glad to take away all the production that Europe decides it does not need (which would amount to just 0.8 Mb/d anyway).

What Could Possibly Go Wrong?

Whatever their vitae, dreaming up a buddy relationship [built around Joe Biden] as solution to the troubled U.S.-China relations almost certainly ahead, is, indeed, preposterous. The little soap opera proves, were it not already self-evident, the “lessons” of the Cold War lie buried somewhere in the Library of Congress -- with no remnant at CIA, one surmises.

The fact is that the US has been on a slippery slope for decades, and it's about to go over a cliff. However, our standard of living, while declining, is still very high, both relatively and absolutely. But an American can enjoy a much higher standard of living abroad. On the other hand, if I were some poor guy in a poverty-wracked country with few opportunities, I'd want to go where the action is, where the money is, now. Today, that means trying to get into the United States. The US is headed the wrong direction, but it's still a land of opportunity and a whole lot better than some flea-bitten village in Niger...This is one of the advantages of studying history, because it shows you that things like this rarely happen overnight. They are usually the result of trends that build over years and years, sometimes over generations. In the case of the US, I think the trend has been downhill, in many ways, for many years. Pick a time. You could make an argument, from a moral point of view, that things started heading downhill at the time of the Spanish-American War. That was when a previously peaceful and open country first started conquering overseas lands and staking colonies. America was still in the ascent towards its peak economically, but the seeds of its own demise were already sewn, and a libertarian watching the scene might have concluded that it was time to get out of Dodge –

There is literally no difference between Obama and a moderate Republican when it comes to the truly important policies governing the nation's insolvent finances, its predatory financial sector, its corrupt and fraudulent sickcare system or its sprawling Empire. Obama's policies have all aided and abetted existing Status Quo cartels and fiefdoms. He has changed absolutely nothing of import except further eroding civil liberties. President Obama can be charitably characterized as an ineffectual Demopublican. From those demanding more, then he can be accurately described as a well-meaning puppet of Wall Street and the rest of the Status Quo cartels and fiefdoms.